Beyond India: List Of Alternative Investment Options In The West
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This article explores alternative investment options available in the West, beyond traditional Indian investments, focusing on art and collectibles, horticulture and farmland, cryptocurrencies, social impact investing, and fractional franchise investing.
Art and collectibles offer potential high returns and portfolio diversification but come with risks like illiquidity and high tax implications.
Farmland and horticulture investments provide diversification and passive income opportunities but require high upfront costs and face environmental risks.
Cryptocurrencies offer high return potential and diversification but are highly volatile and lack regulation.
Social impact investing and fractional franchise investing provide unique opportunities to align investments with personal values and access high-quality brands, respectively, but come with challenges like limited control and complex legal agreements.
Its obvious that while running India’s first and largest community for alternative investments, we have covered almost all of them in detail for you, whether its corporate bonds, invoice discounting, P2P lending, asset leasing, digital gold, or SDIs.
But in this latest blog of ours, we are aiming to paint a bigger picture by compiling a list of various alternative investment options that are available in other parts of the world, be it the USA or Europe.
So, going beyond India, let us understand some of the alternative investment options people in the west invest in:
Art & Collectibles
Are you a fan of collecting rare wines, vintage cars, fine art, antiques, stamps or sports memorabilia? Well, all these are not just hobbies, but in fact a form of investment too, as investing in collectibles is done with the hope that the value of the assets will appreciate over time. But these investments lack dividends or any other form of regular income, and it is usually either their historical or expected worth to which investors peg their return expectations.
Some of the prominent art and collectibles investment platforms include Heritage Auctions, TheRealReal, Artsy, Vinovest, etc
Pros Of Art & Collectibles
Low correlation with others: Investing in art and collectibles is often seen as a good way to go for portfolio diversification because this asset class tends to have a low correlation with other usual investments like stocks and bonds.
Potential for High Returns: Certain collectibles like rare paintings, fine wines or vintage cars can appreciate significantly over time, thus offering the potential for high returns.
Hedge Against Inflation: Some of the high-value collectibles like fine art can act as a store of value/hedge during periods of inflation or economic uncertainty.
Cons Of Art & Collectibles
Illiquidity: Lack of liquidity can become a cause of concern in this asset class, as selling of art or collectibles can be challenging due to limited buyers and market inefficiencies/changing trends.
Lack of Passive Income: Unlike stocks, bonds or real estate, art and collectibles do not generate a passive income for you (such as dividends or rent) until they are sold.
Risk Of Damage Or Loss: Given that art and collectibles are physical assets,they are always vulnerable to theft, fire, water damage, or deterioration over time, which can make it difficult to sell and earn anything from them.
High Tax Implications: Capital gains tax on sale of art and collectibles tends to be on the higher side (e.g., it is upto 28% in the U.S.). This reduces your post-tax returns on that investment.
Horticulture and Farmland
Another alternative investment option quite popular in the west, is farmland and horticulture. Backed by the expertise of farmers themselves or agriculture sector professionals, platforms in this category are providing investors with direct and convenient access to this asset class.
Farmland acts as a blend of both real estate and commodities investment, as investors can not only reap the benefits of physical/ tangible land but may also receive ongoing cash proceeds if operations and sales of commodities end up yielding positive results.
Some of the prominent farmland and horticulture investment platforms include FarmFundr, AceTrader, HarvestReturns,etc
Pros Of Farmland & Horticulture
Adds A Layer Of Diversification: As farmland and horticulture investments are less correlated with traditional assets like stocks and bonds, they give a much needed diversification and stability to your portfolio, especially during market volatility.
Long-Term Appreciation: Given that agricultural land tends to appreciate in value over the long run, especially if located near areas with planned infrastructure development.
Passive Income: As an investor, you can generate rental income by leasing your land to farmers or agribusinesses, thus providing a steady stream of passive income.
Tax Benefits: In some countries like the USA, there may be tax advantages associated with farmland investments. Certain farmland investors may qualify for the Qualified Business Income (QBI) deduction, a provision which allows eligible taxpayers to deduct up to 20% of their qualified business income, which includes profits from farming operations or farmland rentals.
Cons Of Farmland & Horticulture
High Upfront Costs: It’s a no-brainer that purchasing farmland requires a substantial initial investment, including the cost of land, equipment, and possibly infrastructure development. This may not be possible for many retail investors.
Illiquidity: Farmland is an asset class that is generally illiquid, which makes it difficult to quickly convert it into cash if needed.
Multiple Operational Risks: As farming is subject to a lot of operational challenges like crop diseases and pests, its productivity and profitability can be impacted.
Environmental and Climate Risks: Another big risk with this asset class is the uncontrollable weather-related events like droughts, floods, and extreme temperatures, which can significantly affect crop yields and revenues.
Cryptocurrencies
The emerging form of digital currency, cryptocurrency is seen as an alternative investment as it is outside the traditional scope of stocks and bonds. Though some may claim cryptocurrency does not offer a strong hedge against other risk-on investments, it may provide capital appreciation or passive income due to staking rewards.
Some of the major cryptocurrency platforms in the world include Binance, Coinbase,OKX, Bybit, etc
Pros Of Cryptocurrency
Decentralization: As cryptocurrencies operate on decentralized networks, they eliminate the need for intermediaries like banks, which reduces the risk of single points of failure through an intermediary.
Potential for High Returns: With both Bitcoin and Etherum’s prices jumping around 1,000% in the last 5 years, and Elon Musk’s favourite Dogecoin seeing a nearly 8,000% jump in the same period, its true that cryptocurrencies offer the potential for big gains, especially in the long run.
Diversification: As an alternative investment option, cryptocurrencies offer the benefit of diversification to a portfolio that would otherwise have been stuck with traditional options like FDs and stocks.
Cons Of Cryptocurrency
High Degree Of Volatility: With the big falls that most of the major cryptocurrencies are seeing this year (Bitcoin down more than 17%, Dogecoin down more than 50% and Etherum down more than 55%), its true that prices of this asset class are indeed extremely volatile and risky.
Lack of Regulations: In most countries, crypto has been operating in a largely unregulated space without formal laws and regulations, which increases the risk of frauds or scams.
Complexity: No matter how popular crypto seems to be getting, it's still true that understanding and investing in this asset class requires technical knowledge, which can be a big barrier for beginners.
Limited Acceptance: Given that cryptocurrencies are not universally accepted as a payment method, their practical use in daily transactions is very very limited.
High Potential For Illegal Activities: Crypto and scams are two words that are often seen together. Whether its money laundering, tax evasion or ransomware attacks, crypto is often on the receiving end of illegal activities.
Social Impact Investing
This might be something not many of you have heard of. Some companies have begun unleashing their power of capital through contributions towards philanthropy and other social causes. They focus on investing in enterprises that deliver measurable social or environmental benefits and have clear impact goals. Such organisations also aim to develop innovative investment solutions that accelerate the transformation of the economy towards a more sustainable model.
Some of the major social impact investing platforms in the world include ImpactAssets and Mirova.
Pros Of Social Impact Investing
Support social causes: This asset class allows investors to support causes they are personally passionate about, including climate change, access to education and healthcare, inequality, and poverty alleviation.
Encourages Innovation: Investing towards social causes is what can drive companies towards disruptive technologies and innovative business models, and hence end up solving pressing social and environmental issues in the run.
Positive Ripple Effect: Social impact investing can act as a catalyst in inspiring other investors as well as organizations to adopt similar strategies, thus creating a ripple effect of positive change in markets.
Cons Of Social Impact Investing
Limited Investment Opportunities: As compared to other asset classes, the pool of investments is relatively smaller, which can make diversification challenging for investors, and they may not get the right opportunity to invest in.
Complex Risk-Return Dynamics: Its true that balancing financial returns with social impact can be a complex process/task, which would be requiring careful and a not-so-easy analysis.
Subjectivity in Impact Definition: Different interpretations of what constitutes "impact" can lead to inconsistencies in investment strategies and outcomes.
Fractional Franchise Investing
I am sure at least some of you must be aware that the master franchise for McDonald's in Western and Southern India is held by Hardcastle Restaurants Pvt. Ltd. (HRPL), a wholly owned subsidiary of Westlife Foodworld Limited. Similarly, Jubilant FoodWorks Limited holds the master franchise for Domino's Pizza in India.
While it is a common practice in the US, Europe, etc to see big chunks of money being put into franchisee investing, fractional franchise investing is an alternative investment option that many might not be aware of. Through this route, you can fractionally invest in any of the proven franchises and potentially earn passive income.
US-based FranShares is among the most prominent fractional franchise investing platforms.
While its true that fractional franchise investing does offer a unique investment opportunity if you wish to own a portion of a franchise, what you need to keep in mind are both pros and cons:
Pros of Fractional Franchise Investing
Lower Financial Commitment: Having fractional ownership reduces the overall financial burden as the investment cost is shared among multiple investors instead of falling solely on you. This makes franchise ownership accessible as an asset class to those with limited amount of capital.
Diversification: Fractionalisation opens up the doors for investors to spread their investment amount into multiple franchise brands or sectors, thus reducing your overall risk and offering diversification to your portfolio.
Access to high-quality brands: Investing fractionally in a franchise enables you, as an investor, to invest in high-quality/premium companies which might otherwise have been financially out of reach due to high cost.
Generation of passive income: Successful franchises like McDonalds or Dominos or Raymond offer the potential to generate regular dividends or profit shares for their investors, thus making it a source of passive income.
Cons of Fractional Franchise Investing
Limited Control: Given that investing in a fractional manner mostly keeps you away from strategic decision making and daily operations, fractional franchise investing does not give you much control or influence over the same.
Complex Legal Agreements: As fractional franchise ownership involves a lot of intricate legal contracts which can seem complex as they require careful review to understand rights, responsibilities, profit-sharing mechanisms, and dispute resolution processes.
Management Conflicts: While you do get the benefit of low financial commitment, fractional franchise investment comes with the risk of disagreements with co-owners or between the parent company and franchisees, which can lead to strained relationships and ineffective management.
Market Risks: Just like almost all alternative investment options, fractional franchises too are subject to market risks like economic downturns or shifts in consumer preferences, which can impact your expected returns.
Dependency on Platform or Franchisor’s Efficiency: The returns that you can potentially get would also depend on the franchisor's ability to manage the business operations effectively, or the investment platform's ability to select profitable franchises as well.
Conclusion
While exploring alternative investment options beyond India in this blog, it's fair to say that the global landscape offers a diverse array of opportunities. From the tangible allure of art and collectibles to the innovative potential of cryptocurrencies, each investment avenue presents its own set of advantages and challenges. Horticulture and farmland provide a blend of real estate and commodity benefits, while social impact investing aligns financial goals with personal values. Fractional franchise investing opens doors to high-quality brands with lower financial commitments.
As investors, when you consider these options, it's crucial to weigh the pros and cons, understand the risks involved, and align investments with personal financial goals and risk tolerance. By doing so, you can effectively diversify their portfolios and potentially enhance their financial returns while exploring new and exciting markets.
Please note that this is an opinion blog and not official research advice. This blog aims to promote informed decision-making and does not encourage or discourage you from investing in any asset class or platform.
Thanks for reading, that's it from our side. If you know of any platforms or any new category or topic that we should cover next, please let us know. If you would like to join India’s first and largest community for alternative investments, click here!
