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

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

JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 JP Morgan launches Emerging Markets Opportunities Equity Offshore Fund    The new fund offer opens for subscription on 16 th June and closes on 30 th June. JP Morgan Mutual Fund today announced the launch of its open end fund of fund called Emerging Markets Opportunities Equity Offshore Fund. The fund will invest in an aggressively managed portfolio of emerging market companies in the underlying fund - JPMorgan Funds - Emerging Markets Opportunities Fund, says a JP Morgan press release. Noriko Kuroki, Client Portfolio Manager, Global Emerging Markets Team (Singapore), JPMAM said, "Emerging markets have been out of favour for several years, as growth decelerated and earnings struggled. However, in a world of globalisation, we believe that EM will eventually re-couple with DM, leading to the long-aw...
Read more

Nifty F&O

  1. What is a straddle? A strategy using Nifty options usually before a major event or when one is uncertain of market direction. Comprises purchase of a Nifty call and put option of the same strike price. Usually strikes are purchased closer to the level of the underlying index. 2. What is better ­ buying or selling a straddle? It depends.Implied volatili ty of options, or near-term expectations of price swings in an un derlier like Nifty , usually peaks before an event and falls when the outcome plays out ­ like Infy re sults in past years. However, once the event plays out, a sharp rise or fall in Nifty could result in price of the straddle rising ­ benefiting buy ers. But, normally , those who sell or write options charge hefty premiums from buyers in the hope that fall in volatility would ensure the options end out-of-the-money, hurting buyers. 3. So, do straddle sellers end up winning most of the time? Yes. That's invariably the case when market volatility is trending on the...
Read more

UTI Equity Fund Invest Online

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   UTI Equity Fund   Invest Online UTI Equity is a large cap-oriented fund with assets under management worth Rs. 2,269 crore (as on June 30, 2013). The fund was originally launched in May 1992 as UTI Mastergain and is benchmarked against S&P BSE 100. A couple of years back the name of the fund was changed to UTI Equity Fund and many of the smaller funds of UTI were merged into this fund. Performance The fund has outperformed its benchmark as well as the equity diversified category average in the last one-, three- and five-year periods. It has repeated the same in 2013 (as on May 31). Since its inception the fund has delivered an impressive 26 per cent compounded annual growth rate which is superior to its benchmark performance in the same period. Y...
Read more

Good time to invest in Infrastructure Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Good time to invest in infrastructure The Sensex has gained almost 10 per cent from May 15 till date, while the CNX Infrastructure Index has gained almost 17 per cent in the period. The price to earnings ( P/ E) ratio of the BSE Sensex is 18.96; for the CNX Infrastructure Index, it is 24.57. The estimated P/ E for next year is 14.04 for the Sensex. Of the 24 companies that make up the CNX Infrastructure Index, six have a P/ E higher than 20. Does this mean infrastructure is fairly valued? Or, has it run up quite a bit? According to experts, barring stray companies, the infra sector is fairly valued and it is a good time to invest. Even if some companies are facing debt restructuring problems, once interest rates come down and regulatory norms become flexible, they will start giving good re...
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