Alternative investments are forms of investment that are not classified into traditional asset classes like stocks, bonds, or cash. Private equity, venture capital, hedge funds, real estate, commodities, infrastructure, and other types of investments are examples of alternative ones. The possibility of higher returns and portfolio diversification has increased the popularity of alternative investments in India over the last few years.
Size of India’s Alternative Investment Market
Over the last few years, India’s alternative investment market has been gradually expanding.
The alternative investment assets under management (AUM) in India in 2022 were $72 billion, according to the Preqin Benchmark Report for India Alternative Investment Funds. This represents an increase of more than 100% from 2016 when the AUM was $36 billion. The main drivers of alternative investment market expansion are Investment in real estate and private equity.
As of 2023, the Indian alternative investment industry is estimated to be worth around $90 billion. This estimation includes all types of alternative investments, such as private equity, venture capital, hedge funds, and real estate funds, according to Outlook India.
Increasing wealth of Indian households: The middle class in India is expanding rapidly, leading to a rise in the proportion of households with investable assets.
- Rising interest rates: Increasing interest rates reduce the appeal of conventional assets like fixed deposits. This compels the investors to look for alternative investments with higher yields.
- Regulatory changes: In an attempt to make it simpler for investors to enter these markets, the Indian government has made a few modifications to the legal environment for alternative investments.
The key investment portfolio in the alternative investments market and their market shares-
Source – India Private Equity Report 2022 by Bain & Company
Risks connected to investing in alternative investments are illiquidity, volatility, lack of transparency, and fraud.
Despite the dangers, alternative investments can provide investors with excellent returns and diversity. Investors considering making an alternative investment should carefully assess the advantages and risks before choosing an option.
Conclusion
Adding alternative investments to your investing portfolio might be a great approach to potentially increase returns and reduce risk. By looking beyond stocks and bonds for additional asset classes, you can take advantage of prospective opportunities and alternative investment techniques. Before making alternative investments, do your homework, consult a professional if necessary, and carefully consider your financial objectives and risk tolerance.
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