Personal Finance: Alternative investment options
A mix of traditional and unconventional asset classes could not only earn exceptionally high returns in the long run but can also shield you against market volatility.
With the capital market in disarray due to the Covid pandemic, alternative investment options now include asset classes that were once relegated as unprofitable.
Balancing the risk-reward paradigm with a portfolio that delivers stability and returns equally is not easy. The unpredictability of the equity movement prompted many people to allocate their money in debt funds. However, as many companies defaulted on bond payments, this too was not a failsafe option. A mix of traditional and unconventional asset classes could not only earn exceptionally high returns in the long run but can also shield you against market volatility. The risk is also diversified as more money finds its way into investments that may not be related to stock movements at all. Let’s take a look at some options that retail investors are turning to.
Cryptocurrencies came into prominence as markets toppled and people lost money invested in stocks and debt funds, and with the introduction of Bitcoin in 2009. Deemed as one of the most reliable forms of digital currencies, many people resorted to investing in cryptocurrency as they lose faith in the stock market reeling under the effects of the pandemic.
Those who relied more on debt funds due to their secure nature also found investments in cryptocurrencies profitable as the value of Bitcoin rose by more than 200 per cent in 2019 alone. Alternative cryptocurrencies like Ethereum performed better than Bitcoin during the same period. If you have newfound interest in cryptocurrency investments, you may also consider allocating your money into Bitcoin alternatives including Ripple, Bitcoin Cash and Litecoin.
Putting money in gold and gold funds
The habit of buying jewellery, coins and bars has been replaced with digital gold that includes gold Exchange Traded Funds (ETFs), gold funds and sovereign gold bonds. Some may complain that the returns from investment in gold funds do not yield high returns proportional to the rise in the stock market. However, it is the inverse relationship between gold share prices and stocks that benefits investors as gold shares soar with the plummeting of the stock market.
Gold investments offer a platform to investors inclined towards alternative asset classes that grow in value over time. Gold funds yielded an average of more than 25 per cent returns in 2020 when stock prices fell, and the market took a nosedive. Sovereign Gold Bonds provide ease of purchase and storage and don’t pose the same challenges as selling gold in its physical form does. Also, gold bonds offer 2.5 per cent interest on investment every year.
Floating Rate Savings Bonds issued by the Reserve Bank of India offer more than 7 per cent with this year’s interest rate slated at 7.15 per cent till the next reset date. The interest rate on these bonds is linked to that of the National Savings Certificate (NSC) and fetches 0.35 per cent interest above the prevailing NSC rate. These bonds, available with a lock-in period of seven years, are a preferred investment option for senior citizens and investors looking for a regular income plan.
Fixed income deposits in banks
Risk-averse investors are now preferring cash deposits over long-term allocations or volatile investments in the stock and capital markets. Many are now allocating their savings to fixed-term deposits or recurring deposits despite their low interest rates to avail of their high liquidity levels. Bank deposits are already deemed safe with an added ₹5 lakh insurance cover given to account holders to cover their deposits.
This concept is new, especially, after a prolonged period of having heard or witnessed art collectors buying and hoarding valuable art collections as high-priced assets for future sales. However, things have changed with the non-fungible token (NFT) art adopting blockchain technology of cryptocurrencies to create a platform for digital art collectables. Through this platform, you can invest in any artwork or creative piece including artwork, animation videos, music, etc. An unusual part of this technology is that you can trade art pieces for cryptocurrencies like Bitcoin, Ethereum and more. With the value of cryptocurrencies set to increase in future and more people showing interest in cryptocurrency investments, art investors are in for a great and profitable start. The market is close to $ 100 million and is slated to rise with NFT serving as an interesting proposition for art investors.
Initial Public Offerings
News surrounding possible Initial Public Offerings arouse interest in people who wish to invest early in shares with high growth potential. Buy cheap and sell at more is the mantra behind investing in IPOs. However, such investments must be made only after a detailed assessment of the company’s fundamentals that justify the share price and the potential to grow in future. With both the pharma and IT companies providing the much-needed stability even during Covid times, many people are now looking forward to IPO launches by healthcare and IT companies.
Personal Finance is a weekly feature that aims to provide our readers pertinent and helpful financial information