India’s Shifting Investment Outlook

In recent years, India has blossomed into a vibrant hub for technology start-ups. Much of their success can be traced back to a specialized form of investment known as alternative investment funds. These funds focus on nurturing businesses outside the traditional stock market, seeking promising new ventures with high growth potential.

These investments are vital for supporting tech start-ups, helping them build products, expand teams, and compete on both local and global stages.

By channeling funds into start-ups, alternative investment funds not only support companies but also contribute to India’s broader economic growth—creating jobs, advancing technology, and strengthening India’s global standing in tech.

While many investors still gravitate toward traditional assets—like stocks, gold, and fixed deposits—it’s clear that the investment landscape is evolving. Before diving deeper into alternative investments, let’s revisit the traditional methods we’re more familiar with.

Traditional Investments

Traditional investments include well-established asset classes such as stocks, bonds, gold, and real estate. These are typically low-risk and have a proven track record among Indian investors.

The Traditional Three Investments

Bank Deposits

Fixed Deposits are low-risk, stable-return instruments. Investors lock in a set amount for a fixed term and receive interest at a guaranteed rate.

Gold and Silver

Precious metals are favored for their ability to preserve value and protect against inflation. They tend to appreciate over time.

Real Estate

Land and residential properties appreciate over time, offering both rental income and capital appreciation.

Five Benefits of Capital and Money Market Investment

1. Liquidity

Stocks and bonds can be easily converted to cash while retaining their market value.

2. Lower Risk

Traditional options like fixed deposits offer predictable returns and are generally less volatile.

3. Easy to Understand

Clear strategies and transparent pricing make traditional assets beginner-friendly.

4. Better Regulation

These assets are regulated by authorities like SEBI or RBI, providing investor protection and financial reporting.

5. Long-Term Performance

Options like bonds and FDs offer consistent interest over time and help build long-term wealth.

What are Alternative Investments?

Alternative investments include assets outside traditional classes—like angel investing, venture capital, hedge funds, REITs, InvITs, and more. They offer high potential returns, though often with higher risks and longer lock-ins.

India’s AIFs fall into three categories: Category I (startups, infrastructure), Category II (private equity, debt), and Category III (hedge funds).

India’s asset management market has grown from ₹26 lakh crore to ₹68 lakh crore in 5 years, driven by rising incomes, better access, and regulatory reforms.

Alternative Investments to Consider

Start-ups

India’s booming start-up ecosystem is attracting massive investments via VC, angel investing, and equity crowdfunding. Over 1.23K start-ups are DPIIT-recognized as of March 2024.

Venture Capital (CVC): Pooling investor capital to support early-stage companies with high-growth potential.

Family Offices: Account for 31% of start-up funding. Known for patient capital and deep market knowledge.

Angel Investing: Individual investors back early-stage companies with smaller checks and more involvement.

Equity Crowdfunding: Opens start-up investing to the general public with lower minimums and wider access.

Benefits of Alternative Investments

Access: Investment opportunities once limited to institutions are now open to individual investors.

Diversification: Reduces portfolio risk by spreading investments across industries, regions, and asset classes.

Potential Returns: Higher return potential—though with higher risk. Suitable for seasoned investors with risk tolerance.

Risks Involved in Alternative Investing

Poor Liquidity: Assets may be difficult to sell. Start-ups especially have long holding periods.

Lack of Updates: Unlike public companies, private investments provide fewer performance updates.

Total Capital Loss: Start-ups and high-risk investments can fail entirely, so due diligence is key.

Embracing Alternatives for a Smarter Portfolio

Alternative investments are reshaping how modern investors build portfolios. They offer exciting opportunities but require diligence and risk awareness. Start-up investing, in particular, allows hands-on participation in innovation and progress.

About Subra Iyer

Subra Iyer holds a fund management license under Singapore’s MAS, with decades of experience at PwC and as a fund founder. He is also president of Keiretsu Forum (Chennai and Singapore), and co-founded Annexe Fund VCC. With deep due diligence practices and a strong investment pipeline, Subra is well-positioned to lead the next wave of alternative investments in India and beyond.