Tuesday, August 30, 2016

Alternative Investments

Alternative Investments are those that are not regular investments like stocks, bonds etc. These are investments made in order to acquire jewelry, precious metals etc. which are expected to yield returns in future. Hedge funds, some real estate types, venture capital and derivatives also form a part of alternative investment. Alternative investments are so called due to their non-traditional as well as complex nature. Also, another distinguishing feature of alternative investments is relatively low liquidity and well as very high minimum investment limits.

While a common investor may not access alternative investments like hedge funds or derivatives due to their complex nature, others like gold and real estate are available to even the common man. Let us look into some of the most prominent alternative investment tools known to investors.

Hedge Funds

These can be understood as a professionally managed private investment company or partnership structure. Techniques to manage the fund can be those that are not commonly allowed for SEC regulated companies. Hedge funds invest in both financial derivatives and/or publicly traded securities. These are popular as an alternative investment tool owing to their high leverage and high returns. However, they are characterized by high fees as well as low liquidity. It is seen that managers of hedge funds generally have a personal stake in the fund.
Private Equity

Private equity is trading in shares of an operating company that is not publicly listed and whose shares are not available on the stock market. Institutional investors employ various strategies to indulge in private equity trading. Private equity is popular since it offers diversification of financial portfolio by allowing investment in avenues that are not tightly coupled to normal investments.

Venture Capital

Venture Capital is one of the most popular investment strategies currently being deployed by investors in the Indian start-up scene. The idea behind this investment strategy is to invest substantial capital in a budding company in return for stocks of the same. This is done with companies who are either in their initiation phase or in their growth phase. Venture capitalism is generally based on ideas that find substance with the investors or any new technology that the investors feel might take the market by storm in future.
Managed Futures

This type alternative investment involves managers using futures also as part of their investment portfolio. Managed futures are a great tool to offer portfolio diversification and therefore are a great alternative to minimize risk and maximize returns. In general, a managed futures account will have sufficient exposure to different markets like energy, agriculture, commodities, currency etc.

Structured Products

Structured products are alternative investment tools that generally combine two or more financial instruments to make a packaged investment strategy in a single product. Most often, derivatives are combined with securities or with other derivatives. Structured products have a fixed maturity date like bonds. These offer a convenient strategy to implement a complex investment strategy across various financial products.

Collectible items

Collecting artifacts that have substantial value and those that have historical and artistic significance is one of the most difficult types of alternative investments. This requires knowledge of the article that you are purchasing. Mostly, collectibles like stamps, jewelry, boats, planes, art works etc. tend to appreciate in value and are considered good and profitable assets to own. The value of artifacts is generally expected to appreciate and keep pace with inflation and hence collectibles make a good form of alternative investment.

There are a few more alternative investment instruments available in the financial world. However, their use is limited since these are more complex products and are hence not considered by the common investor. Seasoned investors and professional investors tend to consider these alternative investment strategies to increase wealth.

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