Alternate Investment Options for HNIs

Equity and Debt markets are continuing to be unpredictable and the High Net worth Individuals are shifting to other investment options. These are known as alternative asset classes. 

Alternative investment class includes precious metals, real estate, private equity, financial derivatives, hedge funds, wine etc. Both tangible as well as intangible assets fall under this category. They are in total contrast with traditional investments. However, they are found to be more reliable by the HNIs as compared to the traditional investments. 

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The most popular among these asset classes are Alternative Investment Funds, offshore investments, Real Estate Investment Trusts and Infrastructure Investment Trusts. 

Alternative Investment Funds

AIFs are not governed by the SEBI’s regulations, yet there are 500 AIFs registered with SEBI, each of them with a different investment scheme and strategy. Few of them manage to fetch as high as 30 percent return annually. 

The minimum investment required is that of Rs.1 crore. They operate under three categories and are subject to a certification process. The manner of taxation also differs depending on the category. 

Category 1- Under this category Venture Capital Funds, SMEs or infrastructure funds, social venture funds etc.are covered.

Category 2-PE Funds, debt funds of fund of funds and Real Estate Investment Funds.

The above two categories have a minimum lock-in period of three years.

Category 3-Hedge funds or open-ended funds. 

Offshore investments

The LRS or Liberalized Remittance Scheme allows the investors to create an international portfolio limited to a sum of $250,000. This class includes direct equity, mutual funds, immovable properties and ETFs of other countries. 

The investors may prefer to invest elsewhere thereby diverting their risk and return. The benefits also extend to residency or citizenship options in other counties. Those families who are affluent and want to park their funds in real estate in some foreign country might consider this lucrative offer. 

Multi stock market Fintech platforms and feeder funds of Indian AMCs are the other available publicly listed options.

Offshore investments offer tax benefits, handsome returns and transparent investment policies along with arbitrage gains on repatriation.      

Real Estate Investment Trusts and Infrastructure Investment Trusts           

They are preferred over debt instruments. Instead of trading in stocks and bonds, this class has its underlying assets as real estates, roadways, highways and power transmission as well as gas pipelines. (Real estate and Infrastructure trusts)

Real Estate Investment Trust invest in high quality rent yielding properties. So, the investors get a fair share from the returns. Whereas the Infrastructure Investment trusts give long term returns from public utility assets.

The returns from both these kinds of investments are from leasing or operating the properties and the investors get their share in the form of dividends. The returns range from 6-8 percent to 11-14 percent depending on the progress of the rental income and occupancy rate. 

Alternative assets are a great option to build wealth. They help in growing capital, give attractive returns and change the risk-return equation. But it is advisable not to invest for more than 10% in this type of assets due to their illiquid nature and unregulated formation. Investors need to be vigilant while opting for them.   

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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