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Emerging investment options for retail investors in India

Apr-15-2022


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Emerging investment options for retail investors in India

While historically, Indians have preferred investing in physical assets such as real estate and gold along with FDs, things are changing.  With macroeconomic and technological changes, we are now increasingly invested in equities, mutual funds and other financial assets.  For many, this has generated wealth and a rapid increase in investors across age-groups and professions.

While equities/mutual funds are now well understood, here are some emerging options that can deliver wealth and also help diversify your existing investment portfolio.

How portfolio diversification improves return?
Portfolio diversification means spreading your investments across low correlated assets such as equity, bonds, gold, alternatives etc. The goal of portfolio diversification is twofold:
To reduce the volatility of returns
To increase overall returns.
For instance, equity has historically given more than 10% average return annually, but it comes with notorious volatility. There will be years like 2008 where your portfolio can drop by 30-40%. Hence, having a very high allocation is not suitable for everyone.
 
New Age Alternative Investment Options
Thanks to the disruption in technology and finance, today we have avenues to invest that never existed for previous generations. These days we can invest with a click of a button, even geographical boundaries are no more a hurdle. Some of the popular new age investment options are as follows:
 
New Fixed-Income Alternatives
 
P2P Lending Platforms
P2P lending platforms facilitate direct investments into borrowers seeking loans enabling investors to earn direct interest income.
P2P platforms are regulated and licensed by the Reserve Bank of India and a  wide variety of borrower/loan categories and products are available across existing P2P platforms that investors can choose from.
 

With IndiaP2P, investors can choose from ready, diversified portfolios of fractionalized loans.  Diversification and fractionalization reduce risk even for small-ticket investments without compromising on returns.  The platform focuses on women business owners with successful prior loan repayment history as borrowers.

RBI regulations limit investments to 50 Lakhs per investor across P2P platforms. The minimum investment in IndiaP2P is Rs. 5000.

Invoice Discounting
Invoice discounting is a type of financing option where unpaid invoices are sold to a lender who gives a cash advance against the value payable in the invoice- at a discount. 
 

Example: Company A has supplied goods to company B and raises an invoice payable after 90 days of Rs.100,000. However, company A is in urgent need of funds and doesn’t mind taking a slight discount on the invoice value. Lenders will fund such invoices (paying Rs.95000 to company A against the invoice and will receive the full amount of Rs.100000 from the company B after 90 days when the invoice is due- making a profit of 5% 

Minimum investment in invoice discounting starts from around Rs.50,000. 

Equipment Leasing
This is another new-age investment option available in India. Here, you invest in equipment or assets like such as computer systems, vehicles, furniture, etc. and lease them to corporates, to earn returns. This investment option was previously only available to corporates and HNIs. However, with advancements in technology, many platforms offer this service to individual retail investors. 
Minimum investment in equipment leasing starts from around Rs.10000 (varies as per platform and individual deal you are investing in). 
 
And then there’s crypto:
 
Crypto Assets
This is a new asset class that is gaining fast popularity- especially among youngsters. There are various ways to make money from crypto assets like buy and hold, trading, investing in initial coin offers, lending, staking, and more.  There are platforms that facilitate all of these options.
 

Minimum investment in crypto assets can start from as low as Rs.100. Presently a 1% transaction charge is applicable on every crypto asset purchase and a 30% tax on profits.  Offsetting losses on one crypto with gains on another is also not permitted.

 
Conclusion
Investing for wealth creation is no longer just the domain of the savvy and already wealthy.  Technology and regulatory progress have democratized most investment classes.
Make sure you take full benefit of this changing order and diversify your portfolio across all investment options- both traditional and new age. This will help not just to beat inflation but also to grow your wealth. 
 
 

Thank you for reading.

Guest post by Randomdimes

 

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