Can You Invest In Alternative Investments? What Should You Be Aware Of?

By Author: avendusgroup
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People are becoming more aware about investments and the fruits they bear. With the increasing awareness, finance companies in India have come up with several new ways to maximise their profits. Although wary of falling for a trend and the unpredictable nature of the market, companies looking for asset and liability management services want higher returns for their investments. Even though you know nothing of finance, you must have heard the term – high risk, high returns. A notion that the people in the world of finance take seriously. Several finance companies have come up with their own strategies that leverage this notion and have been rewarded heftily for their risk. However, the reverse of this is also true. Even more people have taken unnecessary, uncalculated risks and have paid a heavy price for it. So why does a system where people are exposed to such high risks exist? And how are they still profitable? Introducing hedge funds – an actively managed fund that focuses on these high risk-high return type of investments. They make bullish aggressive investments by using techniques such as leveraging and shorting. These ...
... funds, when initially created, focused on minimizing a risk on your investment and thus ensuring maximum returns with low risk. Therefore, hedging your position against a risk. Nowadays, these funds focus more on maximizing the return rather than lowering the risk by diversifying their portfolio.
So, now that you know how these funds take care of asset and liability management, let us look at how they do this. Normally, finance companies in India are governed by a regulatory body called SEBI which directs and governs how companies function and has set limits to ensure smooth functioning. Hedge funds however, aren’t governed by any such financial regulatory body and are considered an alternative type of investment. This is the reason why they are able to take risks that an individual investor is not normally allowed to take and can generate higher profits.
Here are some things you need to keep in mind before getting involved with such alternative investments:
Who can invest?
Since the minimum investment value on a hedge fund is extremely high, day-to-day regular investors cannot afford to invest in them. It is the sophisticated companies, funds, or high-net and ultra-high-net worth individuals who can afford to invest in them and bear the brunt of a loss. The main reason why these funds are able to take up such huge risks are because of the people behind the investments who are capable enough to absorb any losses made.
What do they invest in?
Hedge funds are not regulated as strictly as a regular mutual fund. Due to this reason, they can invest in most things including but not limited to patents, art, postage stamps, coins, etc. They can also short securities in the market.
What’s the profit margin?
For anyone looking for general asset and liability management services, these funds are certainly not for you. Due to the risky nature of their investments, huge amount of investment, and the fund management charges, investors are equally exposed to the risk of losses as much as they are to making profits.
On top of all these reasons, hedge fund investors cannot take their money out whenever required and are supposed to stay invested during the stipulated time to make any money at all. Most investors, therefore, choose to invest in other finance companies in India that take lesser risk but safeguards low but steady returns on their investments.