India’s economic surge is one of the most impressive financial stories of recent years. Despite battling the pandemic, and numerous other challenges such as high inflation, India is poised to become one of the top 5 global economies within the next few years. When an economy is strong, it also gets robust investment industry growth and that’s exactly what’s happening in the country. The alternative investment fund market in India has emerged rapidly as a key enabler. Currently, the segment is growing at 25% CAGR, and as of May, 2022, over 900 AIFs were registered with SEBI.
Rising inflation, fuel prices, and climate change are some of the factors that are now affecting returns from stock markets and related investment options such as mutual funds and ULIPs etc. Thus, investors are increasingly looking for alternative investment options that can generate better and steady returns for them. That’s where the AIFs are gaining prominence in the Indian market.
In fact, the potential for alternative investments in India is so high that the time has come to put greater emphasis on the segment. Even if the AIFs currently constitute a very small portion of the overall investment landscape, there is no doubt that they are rapidly gaining ground. Here are some of the core drivers of this growth.
No dependence on the stock market – Stock market investments have seen plenty of mega stories, and also instances where people lost everything they had. That’s the way the stock exchange works. It is subject to dramatic ups and downs. However, alternative investments don’t have any dependence on the market. Whether it goes up or down, the investors are likely to remain unaffected and continuously get good returns.
Diversification – When you invest in multiple stocks or mutual funds or even bank fixed deposits, all of them are likely to move in similar fashion in accordance with the prevalent market conditions or government regulations. However, when you diversify your alternative investments portfolio, you get to choose different investment options that are completely delinked from the stock market as well as each other. For instance, you might invest in a REIT, asset leasing or a debt fund for startups, all of which are different instruments.
Tax Benefits – Alternative investments can offer diverse and usually more lucrative tax benefits than conventional investments which incur the regular income tax. Thus, investors tend to get better returns and direct tax benefits.
Income generation – One of the biggest appeals of alternative investments is that they not only generate longer-term ROI, but also offer options for strong monthly or quarterly income. Such options are highly suitable for the elderly who can enjoy the additional income alongside their pension and live better post-retirement lives.
Ease of investments – One of the core reasons why alternatives are now becoming a popular choice is the ease of investments provided by digital platforms. Unlike the past when investors had to do all the due diligence by themselves, today, all of this is taken care of by the platforms. A SEBI registered platform will hand-pick opportunities, do multi-layered due diligence to verify as well as monitor the performance of each option made available to its users. Thus, investors can be assured of superior returns without any need for day-to-day involvement with the investment. Essentially, this makes alternative investments earn for the investors even when they sleep.
Opportunities for all – Digital platforms create larger investor pools and bring down the minimum investment threshold from crores of rupees to about a lakh or there about. Thus, there is democratization of alternative investments which has now brought them within the reach of an average investor and not just HNIs or UHNIs.
Alternative investments have come a long way in the era of digital investments. They have become highly democratized, easy and safe for a common investor. It is this changing face of the alternatives that is effectively making them more mainstream each year. Considering the humongous potential, it is time for investors to put a lot more focus on alternative investments to create wealth in the years ahead!
(The author is Mr. Vineet Agrawal, Co-Founder, Jiraaf and the views expressed in this article are his own)