Today, the AUM of the Mutual Fund industry in India is a whopping Rs. 37 lakh crores! 1
Here’s an interesting fact though: Just 5 years ago, the AUM was less than half of this, at roughly 18 lakh crores!2
Yes. That’s the kind of phenomenal growth that Mutual Funds have seen in India.
A lot of new investors may not know this, but Mutual Funds are not a recent product. The Mutual Fund industry in India started way back in 1963 with the formation of UTI – that’s about 60 years ago. But Mutual Funds as an investment product didn’t catch up with retail investors until recently. In fact, the last decade itself saw a 5X growth in the industry’s AUM.
For retail investors, Mutual Funds are a good way to start their investment journey. They’re simple products, where you give your money to the Mutual Fund house, which professionally manages it and invests it across debt, equity and other products, depending on your goal and the fund house’s objective. Taking the SIP mode is a great option when it comes to Mutual Funds since regular, periodic investments take care of volatility in the market and average out your returns. And over the long term, most equity funds tend to give average annual returns between 12-20%, which are great numbers to look at!
Having said that, even though Mutual Funds are great products, they do face some challenges:
- Equity Mutual Funds are dependent on market movements. So if the stock market crashes, your MF portfolio will be in the red
- Debt Funds too, are dependent on interest rates. So if the central bank raises these rates, your debt fund NAV could fall too
And that’s why you, as an investor, need to diversify across multiple asset classes.
One great place to invest in, is alternative assets.
These are typically products that fall beyond the traditional investment classes like stocks, bonds, mutual funds, and cash, and range from products like invoice discounting, corporate debt, venture debt, revenue-based financing, asset leasing, and P2P lending to products like art, antiques, wine, coins, etc.
In fact, multiple experts and financial platforms, including CNBC3 and IPE magazine4, state that investors should allocate 10-20% of their portfolio to alternative assets.
Interestingly, alternative asset classes too, are not a new phenomenon. While the earliest form of commodity trading originated around 4500-5000 BC, the first professional “alternative investment” was made in USA in the transcontinental railroad back in 1852. In fact, even in India, transactions like Invoice Discounting have been going on since years. The only difference is that they were earlier done by banks, and for higher amounts. Today, with platforms like altGraaf, these asset classes have opened up for retail investors too, with investment amounts as low as Rs. 1,00,000. This means that you, as a retail investor could partly finance the invoice of a company with as low as Rs. 1,00,000.
Alternative assets are a great way to diversify for an investor, and come with a lot of advantages.
Advantages of Alternative Asset Classes
- They’re fixed-income products that are not dependent on market volatility; so the investor is sure of getting their money in a certain time frame.
- They give higher returns compared to traditional fixed-income products.
- Since they help in diversification, the portfolio-level risk for the investor is reduced.
Interestingly, just like Mutual Funds, alternative asset classes too are catching up with Indian investors very quickly. As per SEBI5, the Category II Alternative Investment Funds (which invest primarily in venture debt, structured credit products like Invoice Discounting, Real Estate, etc.,) have grown over 42% between March 2021 and March 2022, indicating that Indian investors want a large piece of this pie!
With time, alternative asset classes are going to become as mainstream, if not more, as mutual funds are today. And investors should explore this asset class so that they have more options to diversify their investments and get better yields. If you’re looking to diversify your investments with alternative asset classes, check out some of the opportunities available on the altGraaf platform.
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