RISING INVESTMENT IN ALTERNATE ASSETS

[Dr. Sanjiv Agarwal]

Investments in assets is everybody's desire . One is ever prepared to save and invest in assets that gives him the maximum returns. Traditionally, investors have been investing in assets such as equity, fixed deposits, bonds, insurance products, mutual funds, provident fund etc. Some also invest in gold, gold funds and real estate as physical assets. According to one of the surveys on individual wealth in India conducted by  Karvy group, the total wealth (excluding real estate / gold ) in India held by individuals is estimated to be Rs 73 lakh crore of which 30 percent each is held as fixed deposits and equity investments. However, new trends suggest that investors do desire to invest  in new alternative asset class. The  investment that are outside the purview of traditional asset classes like equity, fixed deposit, insurance or gold are known as alternative assets. These assets include private equity/ venture capital, structured products, real estate funds, art funds  and film funds, among others. In India, investment in alternative assets is still at nascent stage (not even one percent). On the other hand, at global level, alternative assets comprise over seven percent of total  individual wealth.

In equity linked debentures, return on investment is linked to the equity market. These are comparatively new in the Indian market and are of two types-  principal protected, where the principal amount is fixed while the interest component is a variable and linked to stock market movements, and  non- principal protected, a riskier variant, where even the principle is linked to the market.

There are many alternative avenues of raising funds by business entities now a days including private equity funds or venture capital. Private equity or PE broadly  refers to any type of non-public ownership equity securities which are not listed on a stock exchange. Private equity encompasses both early-stage (venture capital) and later stage (buyout, expansion) investing.

Like mutual funds, real estate funds are formed by a group of real estate professional / experts to manage property / real estate for investors . Real estate funds offer investors diversification across cities and properties. The introduction of real estate mutual funds has further ensured large scale investment in the Indian real estate market. As of now, the real estate window is open to high net worth individuals, institutional investors, and global investors.

Film funds mobilize money to invest in movie production/ marketing. While not all films are successful, the payoffs from the successful ones can be quite huge. An art funds works much like a mutual fund, the difference being that the former invests in art. These funds aim to invest in a diversified portfolio of select works by leading artists, thus providing investors an opportunity to profits by leveraging on the fund's pooled purchasing power.

As the initial investment is huge and risk if fairly high, people are still reluctant to invest in alternative assets in India. However, this scenario is expected to change over the next decade as HNIs (high net worth individuals) will look for myriad options to achieve portfolio diversification. The investment in alternative assets and physical assets including bullion makes a wise sense.