Why Do Investors Seek Out For Alternative Investments?

Over the years, alternative investments have emerged as an avenue to generate more earnings, while being exposed to limited risks. However, several other reasons add up to their popularity.

Nonetheless, to align investments with requirements, investors must make it a point to become familiar with the pros and cons of alternative investment tools. Doing so will prove useful in ascertaining the reason why more individuals are gravitating towards them.

What Is An Alternative Investment?

Fundamentally, alternative investments are financial asset categories that are different from conventional investment categories like - mutual funds, stocks, bonds, and ETFs. It can be said that this category includes investment tools that are generally not listed on traditional indices.

Typically, art, wine, classic automobiles, precious metals, rare stamps or coins, hedge funds, property, etc. are examples of alternative investment options. Fin-tech companies like KredX also offer attractive investment options that accompany high returns at low risks. 

Above all, they follow a different investment approach in terms of tactic, compared to fixed income or equity investment options. As a result, they accompany relatively more varied characteristics and risks, when compared to traditional investment options. It is said that alternative investments help individuals to enhance the risk and return aspect of their investment portfolio. 

Reasons Behind The Popularity Of Alternative Investments:

These pointers below elucidate the reasons that play a crucial role in increasing the popularity and demand for alternative investment options.

• Helps Generate Increased Returns

Alternative investments are more likely to perform better in the long term, when compared to traditional investment options. It is mostly because of the availability of more investment options and relatively fewer constraints. Typically, they accompany potential returns of up to 50% to 100%. 

• Inflation-Adjusted Returns

Usually, the 'hard-asset' category tends to out-perform traditional investment options like stocks and bonds, especially during the inflationary cycles. The inflation-adjusted returns help individuals to account for expenses better with their available disposable income. 

• Protection Against Market Crash

Other than these, alternative investments protect against any market crash and alleviate individuals' concerns related to the same. It is mostly because of their low correlation to asset classes like fixed income or equity markets. Their low correlation with the market makes them less susceptible to elements of market-related risks.

KredX extends unique investment options that prove useful in generating immediate returns. We offer our investors the chance to park their money in instruments of blue-chip companies. This, in turn, assures guaranteed returns against minimal risks. 

• Facilitates Diversification Of Portfolio

Above all, alternative investment options help investors to diversify their portfolio. You must note that it is the correlation coefficient aspect of these investment options that favour diversification. 

This characteristic bodes well with traditional investment tools as well. 

For instance, when a stock or bond does not perform as desired, a private equity fund or hedge fund can help to cushion the impact of the losses, over time. Other than that, it extends the flexibility to add, replace, or align assets as per investors' goals and risk tolerance capacity. 

Types Of Alternative Investments:

Following are a few popular types under the purview of these investment options –

S.N.	Types	Description
1.	Private Debt	This includes investments that are neither traded on the open market nor financed by banking institutions. Private debt is leveraged when companies require additional capital for expansion.
2.	Private Equity	It includes investments made in private companies that are not listed on public stock exchanges. The subcategories of private equity include – buyouts, venture capital, and growth capital.
3.	Hedge Funds	These funds trade liquid assets and follow several investing strategies to maximise goals. However, they are available exclusively to institutional investors.
4.	Commodities	They serve as a hedge against inflation. The prices of commodities rely heavily on demand and supply aspects.
5.	Real Estate	It is the biggest asset class in the world. Its characteristics are somewhat similar to bonds and equities. Notably, valuation is a challenge with real estate investment.
6.	Structured Products	These products are usually concerned with the fixed income market. This investment is generally characterised as complicated and risky. However, they offer a customised product mix.
7.	Collectibles	Investing in collectibles usually translates to purchasing rare or precious items hoping that they will appreciate over time.

You must note that alternative investment options demand active fund management. It is because these investment options are complicated, volatile and often accompany a high level of risk.

Additionally, the extent of returns on alternative investments depends on the type of investment tool, especially on its risk-reward aspect. KredX offers investors a platform to make above-market returns by investing in a brand new asset class

Having said that it is prudent for investors to  be clear about their financial standing, risk appetite, and estimated earnings before putting their money into alternative investments. They must also make it a point to gather ample information about its working in different setups to maximise the benefits.