Top Alternative Investment Options for Diversification

Investments were different some decades ago. Today, more and more investors are looking for investment opportunities beyond the traditional investment options like stock exchange and mutual funds. Alternative investments have evolved as people look toward diversifying their portfolios and earning high profits.

But what exactly are alternative investment funds, and why are they becoming so popular?

In this blog, we will talk about some of the best alternative investment funds available today. Let’s understand the different forms of investment alternatives, and know why diversification in your investment strategy makes a huge difference.

What Are Alternative Investment Funds?

Alternative Investment Funds are investment vehicles that pool funds from investors to invest in assets that are typically outside the scope of traditional investments like stocks, bonds, and mutual funds. These funds can include investments in P2P Lending, real estate, cryptocurrency commodities, and more.

The primary goal of alternative investment funds is to offer you the chance for higher returns.

Why Consider Alternative Investments?

Alternative investments provide an opportunity to diversify their portfolios and reduce reliance on the stock market.

Best Alternative Investment Options for Diversifying Your Portfolio

1. P2P Lending

Peer-to-Peer (P2P) lending has rapidly emerged as a compelling alternative investment, especially for those seeking to diversify their portfolios beyond traditional assets. This innovative approach allows investors to lend money directly to individuals or small businesses through online platforms, bypassing traditional financial intermediaries like banks.

One of the most attractive features of P2P lending is the potential for higher returns compared to more conventional savings options. Investors have the flexibility to choose between automated or manual lending strategies, depending on their risk tolerance and financial goals.

Manual Lending

Manual lending provides the opportunity to personally select loans based on specific criteria such as borrower creditworthiness, loan purpose, and repayment terms. This method gives you full control over your lending decisions, allowing you to diversify your investments across various loans to manage risk effectively. With manual lending, you can choose loan tenures that align with your financial objectives, whether you’re looking for short-term gains or long-term growth. Start your lending with Manual lending now.

Automated Lending

On the other hand, automated lending offers a more passive investment experience, ideal for those who prefer a set-and-forget strategy. Many P2P platforms offer automated lending plans, where your investment is spread across multiple loans to minimize risk and maximize returns. These plans often come with structured products designed to deliver consistent returns, making them an appealing option for investors who want to benefit from P2P lending without the need for active management. Are you looking to earn monthly interest? Start lending now.

2. Cryptocurrency

Cryptocurrencies such as Bitcoin and Ethereum have gained a lot of popularity as alternative investments with high returns. On the decentralized blockchain technology, cryptocurrencies make it possible to hedge against inflation. They do come with high volatility and regulatory uncertainties, no doubt calling for investors ready to take on a lot of risks. Notwithstanding, their very high potential gains place them as an interesting alternative to traditional assets like mutual funds and bonds.

3. Securitised Debt Instruments (SDIs)

Securitised Debt Instruments (SDIs) allow investors to earn income from pooled assets like loans or mortgages. After that, these are converted into securities. These securities offer different risk levels. You can invest according to your investment goals, with various yields. SDIs provide a structured income stream.

Financial institutions often turn to securitisation to free up capital and reduce interest rates.  Essentially, different kinds of loans are packed into one comprehensive debt product. The process involves issuing pass-through certificates to investors against the securitised loans.

In this way, MSMEs can get access to the funding they need, and therefore SDIs become an important factor for the support of small businesses.

These are the poolings of different loan-backed asset types that originating institutions can pool for securitization. Thereafter, the pooled assets are transferred to a Special Purpose Vehicle, (SPV) which issues PTCs to interested investors on the open market.

SDIs can be broadly classified into two categories, namely, based on the nature of the underlying assets: Mortgage-Backed Securities and Asset-Backed Securities.

The pooled securities are divided into tranches, each tailored to investors based on varying risk levels. Tranches are related securities offered together as part of a single transaction. Each tranche typically has different yields, risk levels, maturities, and repayment privileges, allowing investors to select those that best align with their investment goals.

Are you looking for most such investments? Check out this blog, Best Investment Plan for Maximum Returns.

4. Art & Collectibles

One of the most unique forms of alternative investments, tangible assets like art and collectibles can increase in value over time as they become rarer. Investing in these items requires expertise and an eye of an artist, and one should be able to see the value. It can be satisfying to own something beautiful.  Art and collectibles can be a good way to diversify your investments, especially during uncertain economic times when traditional markets are unstable.

5. Government Securities

Government securities, also called sovereign bonds, are the instruments of debt issued by the government to raise money for their expenditure. These instruments are risk-averse investments  that enjoy faith and credit of the issuing government. They provide a steady return to investors while preserving principal capital.

Government securities are low risk. Good choice for conservative investors who want a reliable income stream. Government securities are also available in various forms, like Treasury bills, notes, and bonds, they are without any doubt one of the most preferred alternative investments in India.

Factors to Consider When Investing in Alternative Investment Funds

Risk Tolerance and Diversification

Alternative investments often come with higher risk than traditional investments, so it’s important to assess your risk tolerance. The best thing to diversify your portfolio across different types of alternative investments this can help you mitigate some of these risks.

Regulatory Environment

In India, the regulatory environment for alternative investments is still evolving. While some alternative investments, like real estate and gold, are well-established, others, such as cryptocurrencies, operate in a more uncertain regulatory landscape. It’s important to stay updated about the legal developments that could impact your investments.

Tax Implications

Different alternative investments have varying tax implications. Understanding the tax implications of your investments is essential for maximizing your returns and ensuring compliance with local tax laws.

Costs and Fees

Finally, consider the costs and fees associated with alternative investments. Consider transaction costs, legal fees, and other expenses can add up, impacting your overall returns. Be sure to factor in these costs when evaluating the potential profitability of an alternative investment.

The bottom line

Alternative investments can surely be fun, and they can help you diversify your portfolio, but they come with their own sets of challenges and risks. If you’re planning to invest in about alternative investments, you should do your homework to see how they might complement your current investment portfolio.