Alternative assets can offer better returns. Should you invest in them?
Imagine having a meal in your favourite restaurant. You start with appetizers, then go to the main course and end the meal with some wonderful dessert. Now think of your investment portfolio as this meal. The appetizers are like investing in direct equities, your main course is akin to investing in mutual funds and think of your dessert as ‘alternative assets’.
Simply put, alternative assets are those that are not a part of traditional financial assets (fixed deposits, equity shares, equity and debt mutual funds) or traditional physical assets (real estate, physical gold). Alternative assets also form part of some asset class but with a twist. There are few other asset classes but they are very niche (like art) and hence not very relevant. It is also appropriate to exclude crypto assets due to the debate and controversy surrounding them.
Alternative assets can be classified into equity (private equity, unlisted equity, venture capital), debt (high yield bonds, market-linked debentures, green bonds, peer-to-peer lending, pass through certificates, invoice discounting), real estate (real estate investment trusts or Reits, infrastructure investment trusts or InvITs, fractional real estate), etc.
Till recently, only ultra high net worth investors (UHNI) and institutional investors had access to investing in these assets due to high ticket sizes. The rise of technology has now made these instruments accessible to all investors due to smaller-ticket size offerings. Most alternative assets, though theoretically tradeable, don’t have an active market. This makes it difficult to liquidate these assets when funds are required at a fair price.
Alternative assets have the potential to give higher returns than traditional assets. Of
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