What is the Scope of AIF in Your Overall Portfolio?

28th September 2022 - Bytes - White Oak

When it comes to investing, most people generally think of investing in traditional investments such as bonds, cash, and equities, among others. There is another type of investing beyond traditional investments, called alternative investments. 

Private equity, venture capital, hedge funds, real estate properties, commodities, and tangible assets such as art, precious metals or wine are all examples of alternative investments. These kinds of investments differ from traditional investments because they aren’t easily sold or converted into cash. Alternative investments are commonly referred to as alternative assets. 

High-net-worth individuals and institutional investors have relied on alternative investments to diversify their portfolios for decades. In recent times, more and more investors are shifting to alternative assets to increase returns, generate income, provide diversification from traditional investments and achieve their financial goals.

The AIF industry is the fastest-growing investment forum in India when compared with the traditional mutual fund or PMS industry.

Let’s explore the benefits of adding alternative investments to your portfolio.

  • Portfolio Diversification

The performance of alternative investments is not correlated with the performance of public markets. Alternatives can be a great way to diversify your portfolio, making it more stable and less susceptible to swings in the market. 
A survey by iCapital Network of top U.S. investment advisors found diversification and lucrative returns as two of the top reasons to invest in alternative assets. Many alternative assets also provide a hedge against inflation. 

  • Enhance Returns

Investors have been attracted to the potential returns offered by alternative assets throughout history. Even though alternative investments are subject to a higher level of risk, they have the potential to provide much higher returns than their traditional counterparts. 

  • Lower Volatility

Alternative investments rely less on broad market trends and more on the inherent strength of each specific investment, making them a good choice for investors in search of portfolio stability. Therefore, adding alternatives can potentially reduce the overall risk of a portfolio. 

  • Passive Income

Passive income is a dream for many investors, and it is possible to generate passive income over the long term with alternative investments. Some alternative investments help to generate regular income through interest payments, rent, and royalties, among others. 
The returns from traditional “60/40” allocation to equities and bonds may no longer be enough to meet your long-term investment goals. Including alternatives in your portfolio help you achieve greater returns to meet your financial goals. Like stocks and bonds, not every alternative investment is created equally, and there are risks that an investor needs to be aware of. The key is finding the right AIF to include in your portfolio.

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