Skip to main content

Alternative Investment Route to create wealth

PE and VC funds, though riskier, could be a good avenue when traditional assets have remained lackluster

With equities seeing red and debt being only marginally ahead of inflation, venturing into alternative assets like private equity (PE) and venture capital (VC) funds is worth considering. These funds, on an average, give 15-30 per cent returns, considerably higher than other investment vehicles.

While the world of PE and VC comes under the more sophisticated investment products, meant for those with high risk appetites, the investment philosophies they follow are not as complicated as one imagines. Traditionally, these funds invest in unlisted companies and start-ups. Once the company grows, they sell their stake to either another PE firm or in the public domain.

When it comes to PE and VC funds, with different funds being at different stages and having different underlying assets they have invested in, it is difficult to gauge the returns. Most funds claim to give returns of 20-25 per cent but actual returns are not publicly available. Domestic PE fund houses such as ICICI Ventures and IL&FS have been successfully running funds for some years and generating returns of 20-25 per cent. The Kotak India Real Estate Fund-I, which started in 2005 and had a seven year maturity period, has already paid investors back their entire principal, as well as given 15 per cent returns. VC funds offer higher returns, in the 25-30 per cent range. These funds are riskier, though, as the investment being made is at a more nascent stage of the company.

In PE and VC funds, investors typically invest in tranches and, in some cases, the payouts made by the funds are also in stages. However, with many of the funds providing returns on maturity, knowing how the funds are doing midway is difficult.

While PE and VC ticket sizes a few years before were in the `5-10 lakh range, the current entry point for most funds is 25 lakh and can go as high as `5crore. However, if the new takeover code guidelines issued by the Securities and Exchange Board of India get implemented, it could raise the minimum investment threshold to `1crore.

Investors usually get into PE and VC funds via their investment banker. Investors directly invest in PE projects as well, often as a group, pooling their money and investing. The advantage here is that investors can leverage the power of multiple investors, getting better deals and attractive valuations. Such investments are riskier than investing in a PE fund, wherein the investor pool is larger and the money collected is diversified amongst various projects and companies.

Another reason these funds make good investments in the current economic scenario is that they get better valuations and deals. In this sense, it is similar to investing in equities or in mutual funds, as a slowdown does provide opportunities as well. Also, with these funds having five to seven-year tenures, the slowdown is less of a concern, as the long investment tenure should ride out the short-term hiccups.

From an investor standpoint, when looking at such a high-risk asset class, going with people who are really good at what they do and understanding their industry and this business well is the key. Here, your banker plays a crucial role, as you would be investing on his recommendation.

Investments in consumer goods, health care and education sectors are on the rise, as these areas have witnessed a lot of asset building. PE investments in India grew 22 per cent last year.

One has to have patience and a long term appetite when investing in these funds. In a portfolio, while five to 10 per cent would be set aside for such investments, these days 15-20 per cent is worth investing in this asset class.

For Indian investors, consumer protection, far lower than that in the West, is an area of concern. A recent World Bank Group report placed India second-last in a list of 170 countries in terms of contract enforcement. "Protection issues for minority shareholders are impacting everyone and the structural bias and lack of protection in terms of payments, returns, inflows and exit clauses has led to investors being weary of such alternate investments.
 

Popular posts from this blog

Systematic withdrawal plan

  Start Systematic withdrawal plan Online Although an SWP gives you regular income and saves on taxes in the long term, you cannot open an SWP on a scheme where you have an ongoing SIP   iStockPhoto If you are planning to take a sabbatical from work or are retiring soon, you may be looking at different investment options that give a regular income. Usually, a lump sum is invested to get regular fixed amounts later. Popular products include post office monthly income scheme, Senior Citizens' Savings Scheme and monthly income plans (MIPs). A lesser known option is the systematic withdrawal plan (SWP) in mutual funds. Recently, some funds have even removed the exit load on SWPs if you were to withdraw up to 15-20% in the first year, to encourage people who want to start investing in this instrument. Here is a look at what an SWP is. WHAT IS SWP? Many of us would be familiar with a systematic investment plan (SIP ), where a corpus ...
Read more

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...
Read more

Stocks with a high dividend yield

Buy Gold Mutual Funds Invest Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Call 0 94 8300 8300 (India) Stocks with a high-dividend yield can provide investors additional cash flow. More importantly, it is tax-free   With April 2011 just over, the 'earnings season' is well and truly here. This is the time most companies pay out a portion of their profits as dividends to shareholders. Since dividends are tax-free, they are an attractive income source with a select class of investors, who depend on these for additional cash flow. SIGNIFICANCE A company doing well and generating profits will usually be in a position to declare dividends regularly. Hence, a key parameter one should look at whilst investing in a stock is whether the company has a good dividend record. Typically, dividend yield stocks are large-caps and generally not capital-intensive. This is suggestive of the fact that the downside risk on...
Read more

Assured Nivesh Plan and Smart Suraksha Plan

  Canara HSBC Oriental Bank of Commerce Life Insurance Company has added two new products to its suite -   Assured Nivesh Plan Smart Suraksha Plan   both designed to protect and meet future financial needs.   Assured Nivesh Plan is a traditional endowment plan that caters to the need of savings along with life cover in a single plan. This plan offers limited premium payment options where an individual pays premiums for a limited number of years and yet enjoys the benefits for the complete policy term.   Smart Suraksha Plan is a cost effective pure protection plan that provides insurance coverage against untimely death, thereby, helping one secure their family's financial future. ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equi...
Read more

HSBC MIP Savings Fund dividend

Invest HSBC MIP Savings Fund Online   HSBC Mutual Fund   has announced dividend under the following schemes: Scheme Dividend ( R /unit) HSBC Income Investment-DQ 0.1733436 HSBC Flexi Debt Direct-DQ 0.18056625 HSBC Flexi Debt-DQ 0.18056625 HSBC MIP Regular-DQ 0.18056625 HSBC MIP Savings-DQ 0.2022342 HSBC MIP Savings Direct-DQ 0.2022342                     The record date has been fixed as June 27, 2016.     ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fund 8. Reliance Tax Saver (ELSS) Fund 9. Religare Tax Plan 10. Birla Sun Life Tax Plan I...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now