Alternative Investment Avenue

Alternative Investment Avenue

Alternet Investment

 

“Alternative investments can help an investor mitigate

The effects of market volatility on their portfolio while providing attractive returns.”

 An alternative investment is an investment in asset classes other than stocks, bonds, and cash. The asset class includes various tangible and intangible asset class such as precious metals, art, antiques, coins, or stamps and other financial assets asset class such as commodities, private equity, distressed securities, Derivative such as Future and option , hedge funds, venture capital , real estate timberland etc. These are the asset class or investment option is often termed “alternative” asset class.

Alternative investment offers exposure to investment opportunities not generally available through traditional asset class. Alternative investments can help an investor mitigate the risk & the market volatility on their portfolio while offering attractive returns.

We tried to list few alternative asset classes and their risk and return profile in the below mentioned table –

 

Sr. No Alternative Asset class Risk Return potential Liquidity Time horizon
1 Hedge funds High High Low Long term / Medium
2 Opportunistic/distressed strategies High High Low Long term / Medium
3 Arts High High Low Long term

 

Advantage

  • It offers greater diversification to the portfolio by allocating the exposure to the investments whose expected return is not correlated with traditional asset class like fixed income and equity. Due to this varied risk characteristic of the alternate asset class the overall portfolio improves.
  • Helps investor to achieve higher return and meet his cash-flow requirement
  • In the modern day, the alternate investment market is growing very rapidly and quickly. It involves different tactical strategies such as arbitrage, market neutral strategy, multi strategy, fund on fund, dividend stripping, especially opportunities strategy etc.

Low lets look at different popular alternative investment opportunities available with us and strategy they employ to get a higher return.

 

Alternative Investment option Strategy Employed Remarks
Hedge Fund Fund on Fund High risk high return
Arbitrage strategy Low risk , medium return
Opportunity strategy Low risk , medium return
Market Neutral Strategy Medium risk medium return
Private Equity Venture Fund High risk high return
Distress Security High risk high return
Leveraged buyout High risk high return
Real Estate Commercial Medium risk
Residential Medium risk
Infrastructure improvement High risk
Timber Land High risk
Arts Invest in an artist Low liquidity

Conclusion

Alternative asset strategy is unique and certainly provides a higher return to higher and medium risk. Generally, these kinds of strategies are available to select money manager and hedge funds and not very popular in the market. Depending upon your “Risk Profile”, investment objective and more importantly, tax status, one should consider an alternative strategy in his portfolio.

 

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