When Suraj opted for an early retirement at the age of 50, his hefty provident fund contributions, over his employment period of 25 years, helped him amass a corpus of INR 1.50 crores. Since he had already saved up for the initial period of his retirement, he did not need to utilise his PF corpus for the next 10 years and that is when his financial advisor suggested that he invest the corpus in the alternative funds industry, which comprises of Portfolio Management Services and Alternative Investment Funds. Given the optimal returns being offered by PMS funds and AIFs, this was an easy decision for Suraj. According to reports, the month of January witnessed a minimum of 22 PMS schemes offering investors double-digit returns going up to 17%, even as the frontrunner on the returns chart offered a stupendous return of 133% over the last one year. Separately, long-only AIFs managed to offer returns ranging up to 84.65% in 2023, indicating the enormous potential inherent in the fast expanding domestic alternative investment landscape.
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Benefits to consider
So, what are the benefits of investing in alternative investment opportunities? Incorporating alternative assets like AIFs and PMS into investment portfolios offers various advantages – firstly, they provide diversification opportunities, which can help reduce overall portfolio volatility by including assets with low correlation to traditional investments. Secondly, alternative investments often have higher potential returns compared to standard investments, as they operate in niche markets or employ innovative strategies and despite the higher risk, informed investors can select options aligned with their risk tolerance and financial goals. Further, alternative assets typically show non-correlation with stock market performance, making them valuable during market volatility and certain alternative investments offer tax benefits such as deductions on expenses or tax deferral until exit, allowing investors to optimise their tax strategies and potentially increase after-tax earnings.
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Things to be Mindful Of
Alternative investments may have limited liquidity compared to traditional assets, often featuring longer lock-up periods or restricted selling options. Additionally, these avenues may entail higher fees, including management costs and performance fees, impacting overall returns. They also demand specialised knowledge and higher risk tolerance. So, you should conduct thorough due diligence, seek transparency from providers, and analyse offering documents to mitigate risks.
Should you choose alternatives?
When considering whether to choose AIFs and PMS, it is crucial to evaluate your investor profile – if you have already explored traditional investment avenues and seek personalised investment options tailored to your needs, these could be beneficial. These options offer the expertise of seasoned wealth managers capable of generating market-beating returns and preserving wealth long-term and are particularly suitable if you aim to expand your portfolio and pursue higher returns in a potentially riskier environment. Before making the switch, ensure that the investment strategies of these platforms align with your risk tolerance, return expectations, and financial goals and remember to gain experience with traditional assets to understand the broader investment landscape and avoid miscalculations.
Given this background, before allocating his hard-earned corpus to PMS and AIF schemes, Suraj made sure to research the avenues and spend time with the fund managers he would be trusting, to ensure an optimal outcome because, as is often said – it is better to be safe than sorry.
