Alternative Investment Funds in India: An Overview

Alternatives to standard investment vehicles include alternative investment funds (stocks, bonds, and cash). Retail investors can receive returns of 11–13% from alternative investments, and alternative investment funds in India provide returns that are significantly higher than those from traditional investments. These are sensible investment choices that offer a variety of options and are unrelated to the bond or even the stock markets. To diversify their holdings, investors can invest in alternative investment funds. It serves as an asset hedge as well. AIF funds are used by HNIs (high net worth individuals), family offices, and wealthy retirees to generate regular and passive income. We will discover what alternative investment funds are and how they differ from other types of funds in this article.

Alternative Investment Funds: What Are They?

Alternative investment funds include hedge funds, venture capital, private equity, angel funds, real estate, commodities, collectibles, structured products, and a lot more. An alternative to conventional investment alternatives are alternative investment funds (stocks, bonds, and cash). For benefits and investment diversification, investors can purchase AIF funds. AIF funds are typically preferred by high-net-worth investors, retail investors, and individuals. Nevertheless, unlike traditional assets, they are difficult to buy and sell. The government is attempting to increase the transparency of these alternative investment funds.

The Best Indian Alternative Investment Funds

1. Hedge funds: Hedge funds are a class of alternative investment funds that raise money from investors to invest in local and international debt as well as highly hazardous equity markets. Hedge funds provide significant returns to investors because they employ an aggressive investment strategy. Hedge fund managers demand a high management fee of between 2% and 20% of the total yearly returns. Hedge funds are typically preferred by authorized investors with high net worth.
2. Private Equity: Private equity funds make investments in businesses that are not publicly traded. Private businesses are unable to raise public financing because they are not listed on public exchanges. So, they use private equity funds to raise money. The investment horizon is quite broad. In India, private equity funds have raised about $100 billion over the last 13 years. As a result, they are crucial to the growth of small and medium businesses.
3. Oil, grain, agricultural products, energy, metals, and other commodities are examples of commodities. They are attainable through trade. Investing in commodities is a wonderful strategy to hedge against inflation because when inflation rises, the price of commodities rises along with the price of other things. Yet, the macroeconomic forces that influence the commodities markets make them vulnerable to market instability. Investors should therefore think about these considerations before making a commodity market investment.
4. Actual estate: Prior to the invention of REITs (real estate investment trusts), investors could only invest in real estate if they had a sizeable sum of money, typically between a few lakhs and a few crores. Now, however, individuals can invest in real estate with as little as 5000 to 10,000 rupees. With the use of platforms like Strata, PropShare, and others, investors can purchase real estate, such as offices and commercial buildings, for a little investment. Investors can hold a portion of grade A properties like offices, warehouses, and commercial buildings. Some properties already have a tenant who pays rent each month, ensuring a steady flow of money for the property owner. With REITs, real estate mutual funds, and other vehicles, you can invest in real estate.
5. Venture capital: funds are the kinds of funds that invest in young, fledgling businesses that require money to grow and improve their operations. After the US and China, India has one of the largest startup ecosystems worldwide. As a result, startup business owners can obtain funding from venture capital funds. Based on the qualities, stage of product development, and asset size of the organization, venture capital funds invest in small enterprises and startup companies. The primary goal of venture capital is to aid in the expansion of goods and services while also assisting in business scaling. Depending on the companies that a venture capital fund has invested in, investors may receive rewards.
6. Peer-to-peer lending: Previously, P2P lending included people depositing money in a bank to earn interest and then lending that same money to borrowers who agreed to pay the bank a set amount of interest. The bank holds the difference between the interest that the borrower pays and the interest that the depositors earn. In contrast to banks, which have restrictions on who can borrow money, how much they can borrow, and at what interest, modern P2P lending does not use banks, allowing both lenders and borrowers to earn higher interest rates. Many P2P lending platforms, like FairCent, Lending Club, Liquid Loans, and others, let people lend money to each other.These platforms give lenders the ability to choose their borrowers based on the loan's terms, location, profile, purpose, length of the loan, and interest rate. They currently provide 18–22% net returns. P2P lending is risky, though, as there is always a danger that the borrower will stop making payments. So, before investing, investors should complete their due diligence.
7. Angel money An example of an alternative investment fund is an angel fund, which collects money from a number of investors who are eager to fund startup companies in their early stages. Investors receive dividends after the new enterprises turn a profit. Angel investors support the expansion and profitability of businesses.

These alternative investment funds offer a different way to generate passive income. However, before making an investment, investors should thoroughly explore the platform, avoid making decisions based solely on the interest rate that an alternative investment offers, and carefully evaluate the alternative investment fund option. Instead of concentrating your investment in one alternative investment fund, you should diversify it over several asset classes and begin investing in alternative investment funds in India with less capital. Understand your investing style, risk tolerance, financial objectives, and time horizon before investing in any financial instruments.