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Alternative Investments

Reviewed by Bhavana | Updated on Oct 05, 2020

Catalogue

Introduction

Alternative investments are financial assets which do not belong to the conventional income/cash/equity categories. Hedge funds, commodities, real property, tangible assets, venture capital or private equity are a few examples of alternative investments.

In comparison to exchange-traded funds (ETFs) and mutual funds, most of the alternative investments have high fee structures and minimum investments. Also, these kinds of investments have less chances to render verifiable performance data and publicize to prospective investors. Even though alternative assets have high upfront investment fees and initial minimums, the transaction expenses are typically lower when compared to conventional assets, because the turnover levels are lower.

Alternative funds are broadly classified into seven types:

  1. Bear market: Focuses on short stock positions when the market goes down and looks to profit.

  2. Market neutral: Pursues to bring down systematic risk by utilizing long as well as short-selling to balance out one another.

  3. Managed futures: Utilises derivatives like futures and options for making bets on the direction of markets, such as currencies or commodities.

  4. Multicurrency: Invests in several currencies utilising money-market instruments (short-term) and derivatives.

  5. Non-traditional bond: Looks at deviating from the conventional practice, often by using absolute-return or unconstrained strategies.

11.* Long-short equity:* Invests in a combination of short and long stock positions as well as related derivatives.

  1. Multi-alternative: Utilizes a combination of alternative strategies.

Highlights of Alternative Investments:

Sometimes, an alternative investment is used as an option to bring down the all-in-all investment risk via diversification. A few of the characteristics of an alternative investment might include:

  1. Low correlation concerning financial products such as bonds and stocks.
  2. It might prove to be difficult for determining the assets current market value.
  3. Expenses involving sales and purchase might be relatively high.
  4. A detailed investment analysis might be needed before buying.

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